“The Irish welfare system does not differentiate significantly between social insurance and social assistance, or between contributory and non-contributory state pensions. Accordingly, PRSI contributions do not bear a strong link to welfare benefits, so that it is acceptable to combine (employee) PRSI with income tax and USC when looking at personal income taxation in Ireland.” IMF “Selected Issues” September 2012
It looks increasingly likely that Pay Related Social Insurance (PRSI) will feature in the Budget 2013 announcements in three months time. Today, the Minister for Social Protection Joan Burton launched a previously-leaked review of the so-called “Social Insurance Fund” for 2010 and her accompanying comments provided a strong enough gust to sustain the PRSI kite-flying.
The 167-page KPMG actuarial review of the Fund in 2010 is available here, it was completed on 7th June, 2012 – the flying of this particular kite has all the hallmarks of being a long-planned venture!
The Fund was set up in 1953 and if you believe the Minister, it is supposed to be a self-balancing fund whose income from PRSI payments by workers is offset by spending on pensions and a number of other benefits including statutory redundancy, maternity benefit, carers benefit, illness benefit and jobseekers benefit but notably it was not intended to cover jobseekers allowance.
It seems likely that Minister Burton will justify either an increase in PRSI or reduction in payments from the fund, or both, on the basis that the fund is in deficit. The annual deficit was €2.6bn in 2010, and according to Minister Burton is provisionally estimated at €1.5bn in 2011.
We know we need find a €3.5bn annual adjustment somehow in 2013, but it is important to remember that Minister Burton’s positioning is no more than window-dressing to justify what is essentially a misdirection – the only true objective is that Ireland must balance its books overall. How we manage components of income and expenditure is for ourselves to determine. Artificially hypothecating income and expenditure – for example when Minister Hogan says that all of a sudden, the Household Charge must equal a certain share of Local Authority spending – is hokum.
Even KPMG itself concedes that within the Fund there is no hypothecation of receipts with expenditure, it’s one giant mixing bowl. But more accurately, our national income is one giant mixing bowl and if, for example, we suddenly decide that the carers allowance should have a higher priority than ministerial pay, we can just cut ministerial pay and re-allocate that money to the carers allowance.
The IMF recently concluded that in Ireland, PRSI is really just part of the big pot of income taxes along with the Universal Social Charge, and it should properly be regarded as part of our tax rate. This view will be offensive to Minister Burton who is constrained by the Programme for Government commitment not to raise income tax rates. No doubt, Minister Burton will be hoping her positioning on PRSI will assist her in justifying adjustments to PRSI or the benefits that it pays.
Despite reductions in outpayments for teeth etc and despite a huge reduction in those claiming stamps as they go long term dole instead…the fund is still running a deficit.
Sick and Maternity pay must be reduced dramatically if they want to balance it out…..either that or massively up prsi itself. Probably a bit of both.
The really bad year was 2009 when it ran down a large retained surplus.
http://www.welfare.ie/EN/Policy/CorporatePublications/Finance/Documents/sif2009.pdf
€9.2bn in and €11.8bn out. -€2.6bn
Of the €11.8bn out some of the main headliners were.
1. Widows Pension €1.3bn
2. State Pension €3.3bn
3. Maternity €0.33bn
4. The Sick €0.7bn
5. Dole €1.77bn
6. Health Contribution €1.6bn .
Well – if it walks like a tax, swims like a tax, & quacks like a tax, it’s probably – a tax.
PRSI is not a tax, and the two should remain separate.
USC is a tax, and should be merged with income tax.
@Lambicman (1) The IMF disagrees with you, and believes PRSI is essentially part of our income tax (see quotation at top, which is repeated with variants in the recent IMF document) and (2) as noted above the fund does pay for jobseekers benefit but not jobseekers allowance, I don’t think most people would differentiate between the two when they refer to “dole”
Note that the SIF does not pay for the “dole”. The SIF pays for JSB. Tax revenue pays for JSA, i.e. the dole.
PRSI-based social welfare payments should be much higher than means-tested social assistance.
Well I feel that the distinction between tax and PRSI should be maintained and enhanced.
I also think that the distinction between social insurance and social assistance should be highlighted more.
In that context, the contributory pension at 230 should be much more than the non-con pension, which is currently 219.
@Lambicman
“I feel that the distinction between tax and PRSI should be maintained and enhanced.”
And I have no doubt that in the run-up to Budget 2013, the distinction will be “maintained and enhanced” but that doesn’t detract from the fact that it is an arbitrary fund, and any shortfall could be made up elsewhere, eg cutting ministerial pay to help fund the carers allowance, abolishing the Seanad to help fund the contributory pension €11-a-week premium over the non-contributory pension – the possibilities are endless!